Market Overview

Kratos to Acquire Composite Engineering for $155M


Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS) announced today that it has entered into a definitive agreement to acquire 100 percent of the stock of Composite Engineering, Inc.

The purchase consideration to be paid by Kratos for CEI is $135 million in cash and $20 million in Kratos' stock, or $155 million. Additionally, the transaction is expected to be structured as a 338(h) (10) for income tax purposes, which will result in Kratos receiving approximately $130 million in federal and California state income tax deductions over a 15-year period. This tax structure and resulting income tax deductions will substantially reduce the cash paid for income taxes on CEI's taxable income and significantly increase CEI's Free Cash Flow generation for the foreseeable future.

CEI personnel, including Mike Fournier have entered into long term employment agreements with Kratos. Accordingly, $10 million of Kratos restricted stock units will cliff vest in four years to certain members of the CEI management team, serving as an inducement to them to continue employment with Kratos after the acquisition and as a long term retention incentive. Sagent Advisors, based in New York, NY, served as the exclusive financial advisor in the transaction for Kratos. Janes Capital Partners, based in Irvine, CA, served as the exclusive financial advisor in the transaction for CEI.

Posted-In: News M&A


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